Earned Value Management for Beginners

Madhur is a seasoned IT professional (PMP, ITIL v3) with over 13 years of experience in project management, consulting, product management and engineering.

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Topics: Cost Management, Earned Value Management, Estimating, New Practitioners, Schedule Management, Scheduling, Scope Management, Work Breakdown Structures (WBS)

Earned value management is a project management methodology that integrates scope, cost and time to highlight how the project has done in the past and predicts how it is expected to do in the future. This article discusses a few basic concepts of EVM and is useful for anyone looking to get started on this topic, as well as for candidates preparing for PMP certification.

To start with, let's look at some EVM terminologies and what they mean:

Estimate to Complete (ETC)
This indicates the money needed from today onward until completion of the project. It can be calculated in two ways:

1. Bottom-up Estimation: Re-estimate the cost of each remaining activity to arrive at the total cost of remaining work.
2. Derive from EAC: Estimate the cost at completion and then subtract actual cost incurred until today; hence ETC = EAC – AC.

Estimate at Completion (EAC)
This indicates, based on today's data, how much the total project will actually cost at the end. There are four ways to calculate it:

1. If we assume that the project will continue to perform the way it has until now (or in other words, the current CPI will not change going ahead), then EAC = BAC / CPI. (1/CPI) indicates how much the project is spending for each $1 of value it is creating.
2. If there have been deviations from budget estimates in the past but the remaining project can be …

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